Sorry, but I am going on another tangent because I actually was a bit player in a drama that made the headlines today: Engle, the $145 billion judgment against the big 5 cigarette companies, which was overturned today by the Florida Supreme Court — essentially on procedural grounds, as discussed below. But, by the way, the Court upheld the jury’s findings that the tobacco companies behaved wrongfully and are liable to Florida smokers!!!!!
I was one of two finance experts for the plaintiff class (Florida smokers). My involvement began very late in the trial in 2000. I testified before the jury that the companies’ ability to pay punitive damages should be measured by the companies’ ability to generate cash. The $145 billion was near the upper bound on the present values of the companies’ discounted cash flow generating potential.
Rather than respond to this analysis, the tobacco companies called their CEOS, mostly marketing guys, to testify. The CEOs said that they can only pay their accounting balance sheet value. This “book” value shows no value for the companies’ brands (except for RJR) and is a tiny fraction of the market value of the companies. (The key economic resource of a tobacco company is its brands.) Not surprisingly, the jury rejected this self-interested testimony.
In this posture, the $145 billion judgment was completely reasonable. The tobacco companies gambled and lost. While this aspect of the our trial system is disconcerting, it is the law. If the tobacco companies had won, they would have laughed all the way to the bank.
Which gets us to today’s decision by the Florida Supreme Court. Down under….
The Florida Supreme Court, in Footnote 8 to today’s opinion, accepts that financial value is the legally-relevant standard for evaluating punitive damages here, but then goes on to say that the award was not supported by the “Engle Class’s expert,” presumably referring to me. They are just wrong on this for the reasons discussed above.
As to the heart of today’s opinion, procedural stuff, I want to remind the reader that I do accounting and tax. Litigation is not an area in which I have expertise. That said, I obviously have real problems with the decision.
A little background: The trial was held in three phases. First, the jury found that the tobacco companies had engaged in wrongful behavior. Second, they found millions of dollars in damages for three members of the class. Then, the jury determined the punitive damages for the entire class: $145 billion.
The Florida Supreme Court ruled today that punitive damages must be decided as to each smoker and not with regard to the class as a whole. There are hundreds of thousands of Florida smokers in the class. The jury in this case was the longest sitting jury in history — over 2 years. Requiring injured smokers to sue separately for punitive damages, including explaining the wrongs committed by the tobacco companies to hundreds of thousands of juries, could well be an insurmountable burden. The Florida Supreme Court’s tortured reasoning makes it likely that the tobacco companies will never be punished for what they did. This is wrong.
But, like I said, I am not a litigator. Decisions like this would push me over the edge…..